ERIA-DP-2015-80

ERIA Discussion Paper Series

Managing Labour Adjustments in an

Integrating ASEAN

Rene OFRENEO

SOLAIR, UP Diliman

Kun Wardana ABYOTO

UNI APRO

December 2015

Abstract: The integration processes of the Association of Southeast Asian Nations

(ASEAN) are ushering changes in the labour market across the region. Unions complain

that jobs are increasingly becoming precarious. Human resource managers find it

difficult to retain talents which have become mobile under the ASEAN Economic

Community (AEC) Blueprint (ASEAN, 2007b) allowing the free flow of skilled labour.

And labour administrators are faced with three major policy issues: 1) how to promote

human resource development in a labour market that has become regional; 2) how to

balance the demand of workers for more protection and the demand of industry for more

labour flexibility; and 3) how to maintain industrial peace in an integrating ASEAN? To

address the foregoing, the paper argues for increased bipartite and tripartite social

dialogue in accordance with the “ASEAN Guidelines on Good Industrial Relations

Practices” adopted by the ASEAN Labour Ministers (ALM) in 2010.

Keywords: Industrial Relations, Labour Adjustments, Social Partnership

JEL Classification: J, J5, J6, J8, G34, K31, M54

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1. Introduction: ASEAN Integration and Labour Market Changes

With the economic integration measures of AEC 2015 now in place, Southeast

Asia’s economy is likely to experience rapid structural changes. Most of these changes

are going to be spearheaded by industries and corporations as they try, at their level,

to adjust to the competition realities in an expanded and liberalised economic

environment in the region. The enabling ASEAN agreements (ASEAN Free Trade

Area [AFTA], ASEAN Investment Area [AIA], ASEAN Framework Agreement on

Services [AFAS, and so on) guaranteeing the free flow of goods, investments, services,

and skilled labour across Southeast Asia mean industries and corporations must adjust

their investment plans and operations to the context of the changing economic realities

not only in the individual ASEAN countries but also ASEAN-wide. Otherwise, they

will be left behind by competition and by those who understand that the overall

direction of ASEAN is indeed to become one ASEAN market and one ASEAN

production base.

Of course, structural changes due to economic liberalisation and deepening

integration amongst economies of the world are not new. The World Bank and United

Nations (UN) agencies, such as the United Nations Development Programme (UNDP)

and the United Nations Conference on Trade and Development (UNCTAD), have

produced numerous materials on changing economic structures amongst countries due

to the impact of the ICT revolution, transport advances, and economic globalisation

policies such as trade and investment liberalisation, privatisation of government

corporations and services, and deregulation of different economic sectors (industry,

agriculture, and services). The rise of ‘Factory Asia’ in the 1970s–1980s is one

outcome of these developments.

This paper, however, is not about structural changes per se. It is an inquiry into

the likely impact of greater regional economic openness on the labour market, human

resources management, and industrial relations (IR) in ASEAN. What are the

emerging trends in the ASEAN labour market? How are these trends affecting human

resources management? And what is happening in the industrial relations system,

particularly concerning union-management relations? How should ASEAN, in the

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context of the ASEAN Socio-Cultural Blueprint, address issues and concerns raised

by the unions in a post-2015 scenario?

In answering the foregoing questions, this paper is guided by the following

analytical considerations:

First, investments and business organisations come in different shapes and sizes

in each country and across the region. Economists generally categorise firms in terms

of sizes (capitalisation and number of employees) – micro, small, medium, and large.

The greater the flow of investments, the bigger the number of jobs created.

However, existing industries and new investments are bound to adjust their

business plans and programmes in response to the realities of global competition and

a more open ASEAN trading regime. Such responses vary – from expansion through

mergers, acquisitions, and consolidations to a reduction of production at home through

a shift to outsourcing or a shift to the import-and-distribute business model (instead of

maintaining an inefficient factory), or worse, to outright closures if firms are unable to

compete. There can be as many permutations of the business organisation.

But in general, business organisational adjustments necessarily include

adjustments in the employment and deployment of workers in each firm or industry.

These adjustments naturally affect the structure of the overall labour market and the

stability of labour relations in each country.

Thomas Kochan (1996) argued that labour adjustment policies are determined or

influenced by the type of employment strategy favoured by firms – either the human

resource investment strategy or the cost-control strategy. The first means ‘a bundle of

human resource practices that begin with high recruitment standards, deep investment

in training and development, broad task or work organization arrangements that allow

for continuous learning and skill acquisition, employee participation in problem-

solving and continuous improvement activities, flattening of hierarchies to both ease

the flow of communication and to decentralize decision-making, broader sharing of

organizational information, and integration of human resource strategies with other

strategic decisions and corporate governance arrangements’ (p.12).

The second strategy means focusing ‘on achieving the low-cost market position

and/or to respond aggressively to short-run pressures to pare down labour costs and

permanent staff to their minimum’ (p.13).This means greater use of temporary or

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contract workers and a harder stance against unionism. Understandably, unions have

been critical about the cost-control strategy, which they blame for the widespread

‘casualisation or ‘flexibilisation’ of labour. However, one must add that the human

resource strategy can also create conflicts with the unions, if there is unwarranted

intensification of work realised through the usual multi-skilling-multi-tasking

arrangement. Jobs can also be reduced because of leaner and meaner operations.

The overall reality, however, is that companies often combine the two strategies

because companies cannot be competitive and sustainable without a minimum pool of

skilled and highly trained technical workers who can be relied upon to keep the

business operations going and who can help manage business innovations. Without

new investments in existing or new industries, both strategies, therefore, contribute to

the phenomenon of jobless growth, especially in countries experiencing capital flight

and market losses.

As to labour relations, it does not follow that harmonious and productive labour

relations cannot be forged with semi-skilled workers, because, historically, the rank-

and-file workers, particularly the blue-collar factory workers, constituted the

traditional base of unionism. The problem arises only when labour abuses are

committed through the unlimited outsourcing of jobs and the unjustified non-

regularisation of jobs through serial or repetitive short-term hiring arrangements. The

point is that companies can develop sound and stable labour relations with all workers

– professionals, skilled and semi-skilled – if they elect to adopt good industrial

relations (IR) practices as part of their overall competitive strategy. Building up

productivity in a conflict-ridden company is always problematic, to say the least.

2. Trends in the ASEAN Labour Market

The ASEAN labour market continues to evolve in a dynamic and complex way.

But it is not a homogenous development, because, like the economy, the labour market

is segmented. The following are the major characteristics of the labour market.

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2.1. Large Informal Economy

The overwhelming majority of workers are in the informal sector (IS) or informal

economy (IE), particularly in the formerly socialist-oriented CLMV countries

(Cambodia, Lao PDR, Myanmar, and Viet Nam)and in the semi-industrialised original

ASEAN countries (Indonesia, Philippines, and Thailand). In measuring the size of the

IS/IE, the International Labour Organization (ILO) uses the concept of ‘vulnerable

employment’, which is defined by the ILO Employment Indicators (ILO, 2009) as the

totality of the ‘own-account’ or self-employed workers who operate farms or micro

family businesses in a generally informal business environment, and the ‘contributing

family members’ (counted in some countries as ‘unpaid family workers’) who cannot

find jobs outside home or family. The total of these two categories of workers is

considered by the ILO as the size of the ‘informal sector’ of an economy.1

The IS/IE in ASEAN covers more than half of the labour force. ‘Vulnerable’

employment accounted for 58.8 percent of total employment in Southeast Asia as of

2013 (ILO and ADB, 2014).This huge size of the IE/IE is due mainly to the uneven

historical and economic development of the ASEAN countries. The more developed

ASEAN 5 (Indonesia, Malaysia, Philippines, Singapore, and Thailand) have

substantial wage labour force, ranging from 33.1 percent in the case of Indonesia to as

high as 90.0 percent in the case of Singapore, based on the ASEAN statistics for 2010

(see Table 1). Malaysia, the second most industrially developed Southeast Asian

country, had a wage labour force of 78.9 percent. In the ASEAN 4 (Cambodia, Lao

PDR, Myanmar, and Viet Nam or CLMV), the wage labour force had been growing

rapidly due to the marketisation policies being pursued by these countries. However,

as of 2010, wage workers constituted only 21.4 percent in Viet Nam; in the other

CLMV countries, the percentage was less than 20 percent.

1This ILO concept of ‘vulnerable employment’ tends to underestimate the size of the IE/IS, because

wage workers in unregistered or unmonitored micro enterprises (home-based, farm-based, and in

informal markets and settlements) are excluded.

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2.2. ‘Flexibilising’the Formal Sector

As can be deduced from the foregoing statistics, the formal sector is relatively

narrow, except in the more developed economies of Singapore and Malaysia. With a

population of less than half a million, Brunei’s labour market is largely formal;

however, Brunei’s labour force is dominated by migrant workers.

Table 1: Wage and Non-wage Employment in ASEAN, 2010

Country

Labour Force

in thousands

(2010)

Sectoral Shares in

Employment

as percent of Total

Employment*

Wage and Salaried

Workers

as percent of Total

Employed* Agriculture Industry Services

Brunei

Darussalam

202 4.2 46.7 49.1 NA

Cambodia 8,050 72.3 8.5 19.8 14.0

Indonesia 117,578 39.7 17.5 41.5 33.1

Lao PDR 3,179 82.2 9.3 8.6 NA

Malaysia 12.250 13.8 26.9 59.5 78.9

Myanmar 27,337 62.7 12.2 25.1 NA

Philippines 39,639 34.3 14.5 51.1 51.4

Singapore 2,632 NA 21.8 77.1 90.0

Thailand 38,977 41.5 19.5 39.0 42.6

Viet Nam 47,936 52.2 19.2 28.6 21.4

Note: *Most recent data available for each country.

NA = not available.

Source: Labour and Social Trends in ASEAN 2010 (ILO).

The common union complaint in the organisable formal sector is that its size is not

only limited (and very often characterised by the preponderance of small and micro

enterprises), but also that the sector is increasingly subjected to variousflexibilisation

measures by employers. As far back as the 1990s, the former Asia-Pacific organisation

of the International Confederation of Free Trade Unions (ICFTU) had warned about

this growing flexibilisation phenomenon in Asia. In 1996, the organisation wrote:

…Employers are increasingly resorting to contracting out work to

workers who work on contract basis with the employer or with

contractors engaged by the employers to do the work concerned. In

other cases certain work is farmed out to a worker or workers who then

either work at the employers’ premises or at some other locations such

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as their homes…These workers are the most exploited and employers

shirk off their legal obligations and responsibilities as employers once

they resort to such work arrangements.

Apart from the above, part-time work, flexi-work and temporary work

are also on the increase. Sales practices such as direct selling is also on

the increase especially amongst women. The advance of technology is

also increasing the number of teleworkers who usually work at home

most of the time. These workers are also usually not provided with the

legal protection due to workers such as social security including

occupational health and safety protection, as well as basic workers’

rights of representation through unions. (ICFTU–AP, 1996, p. 9)

Today, virtually all unions across the ASEAN region are unanimous in their

denunciation of the flexibilisation trend, which they claim continues to grow in various

forms. The use of informal or flexible labour practices in the formal labour market of

the three big middle-income ASEAN countries of Indonesia, Philippines, and Thailand

is illustrative.

In ASEAN’s largest economy, Indonesia, both the informal economy and the

informalising wage market have been expanding, especially in the aftermath of the

Asian financial crisis in 1997–98. Indonesia’s informal sector employment rose

strongly – from 62.8 percent in 1997 to 70.8 percent in 2003 (Felipe and Hasan, 2005).

But Tjandiningsih (2013) blamed the enactment of Labour Law No. 13/2003 for the

upsurge in informalisation of work in the formal labour market. She explained that the

law ‘legalised’ the hiring by employers of short-term casual workers, usually done

through third-party service contracting agencies. The downsizing of regular

employment in many companies has been accompanied by the increased hiring of

more casual/non-regular or temporary workers as well as agency or subcontracted

workers.

In the Philippines, casual workers and temporary workers outnumber regular

workers in most industries. The Philippines’ Bureau of Labor and Employment

Statistics (BLES), in its sample surveys on non-regular hiring, concluded that there is

a rising trend of flexibilisation and that about one-third of the workforce are non-

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regulars. However, these BLES figures are grossly understated because company

responses are limited to the direct hires, regular and non-regular. Companies do not

consider the employees of third-party service or labour contractors as their own

employees even if these employees are placed by contractors on a temporary basis to

do varied work in the work premises owned by the principal companies (Ofreneo,

2013).

The pattern of a huge informal economy and an informalising formal labour

market also can also be seen in Thailand. The1997–98 Asian financial crisis, which

had started in Thailand, helped expand the informal economy and deepened the

formal–informal subcontracting system, with formal economy investors engaging

informal economy subcontractors in the sewing of garments, weaving of special

textiles, production of mulberry products, and growing of certain crops, or contract

farming (Thanachaisethavut and Charoenlert, 2006).

Also, throughout the developing ASEAN countries, there is mobility of labour

between or amongst sectors, for example, unskilled workers in small and medium

enterprises going into agriculture during cultivation periods and later joining informal

construction brigades. Like in other Southeast Asian countries, the statistics are unable

to capture various forms of labour flexibility in the formal labour market, such as

manpower dispatching and the hiring of casual and temporary workers.

2.3. Migrant Workers Circulating Everywhere

Another reality in the ASEAN labour market is the increasing number of migrant

workers ‘circulating’ within the region or crossing borders. In Singapore, Malaysia,

and Brunei (including Thailand), the employment of foreign migrants is the solution

to labour shortages in these cash-rich countries. For these Asian newly industrialised

countries (NICs), the partial or selective relaxation of strict migration rules and

issuance of work permits to foreign workers is the easiest and simplest way of getting

the semi-skilled workers to accept lower wages and do the ‘3D jobs’ (dirty–dangerous–

difficult) their own citizens shun.

No international agency can claim that they know the exact number of migrant

workers in Southeast Asia. The 2015 ILO-ADB study of the ASEAN labour market

put the number of ASEAN migrants, defined as migrants coming from another

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ASEAN Member State but working in another ASEAN Member State, to be 6.5

million as of 2013. These were mostly workers from the less-developed ASEAN

countries working in the more developed destination ASEAN countries such as

Singapore, Malaysia, Brunei, and Thailand. Given the large number of unregistered

migrants (e.g. migrants crossing from Burma to Thailand, or from Indonesia to

Malaysia, or criss-crossing within the Mekong area), the 6.5 million figure is obviously

conservative. Nonetheless, it is abundantly clear that the cross-border mobility of

labour is growing and is likely to intensify as ASEAN pushes more and more towards

fuller economic liberalisation.

The city-states of Singapore and Brunei have the most acute need for foreign

workers – the first because of its amazing economic transformation and the latter

because of its rich oil resources. Migrants made up over 30 percent of Singapore’s

labour force in 2009 (Hall, 2011).

However, the two countries with the biggest numbers of foreign migrants in the

region are Malaysia and Thailand. The estimate for Malaysia varies – anywhere

between two to three million (documented and undocumented). The resource-rich

country has a long history of attracting labour migrants, first to work in the plantations

and forest sector in the post-independence period, then in the electronics assembly

sector in the 1970s–1980s, and today, in the services sector (tourism and so on). As

for Thailand, Hewison and Tularak (2013) noted that the country has close to two

million migrant workers from Burma, not to mention those coming from neighbouring

Mekong countries such as Lao PDR.

2.4. A Complicating Reality in Migration Flows: The War for Talents

But the flows of intra-ASEAN migration are not linear. Manolo Abella (2008), the

former ILO expert on migration, estimated that about 40 percent of Singapore’s

230,000 emigrants are in Malaysia occupying high-skill positions, whereas 73 percent

of Malaysia’s 1.5 million overseas workers are employed in Singapore. Thailand,

which is a major absorber of workers from Myanmar and the neighbouring Indochina

countries, is also a large labour-sending country. Indonesia, the Philippines, and Viet

Nam remain the largest labour-sending countries, but they are also hosting growing

communities of expatriate managers, professionals, and skilled workers coming from

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the various ASEAN and other countries. In short, ASEAN countries are becoming both

labour-sending and labour-receiving countries.

Also, migration flows are cutting across all skills and job categories. This is why

one major challenge for human resource managers today is how to develop, manage,

and retain talents. It is more economical for talent-short companies, such as those in a

rush to build up investment projects, to poach skills at home and overseas rather than

engage in time-consuming training exercises for middle-level and technical personnel.

Poaching is also made easier by online recruitment practices, the ASEAN visa of 21

days for ASEAN citizens, and the inclusion of the ‘free flow of skilled labour’ in the

AEC 2015 blueprint, facilitated by the systems of equivalency such as the Mutual

Recognition Agreements (MRAs) for select professions and the proposed ASEAN

qualifications referencing framework (AQRF). A growing number of highly mobile

professionals and experts are getting deployed within the region and beyond through

online recruitment and tourism-hiring arrangements (professionals come in as tourists

and then apply directly to companies in tourist destinations).

In the Philippines, industries have been complaining about the loss of skills and

talents since the 1970s, when a programme for short-term migration for work was

instituted on a supposedly ‘temporary basis’. Then the complaint was about the

difficulty of getting good electricians, plumbers, and other skilled construction

workers, because the best workers in the construction industry were being hired en

masse in the Middle East. Today, the complaint is about the loss of ‘mission-critical

skills’2, meaning skills possessed by personnel who are not easy to replace and train

such as production engineers and pilots; otherwise, companies and airlines will be

forced to stop operations. Schools are also complaining about the loss of English and

mathematics teachers. On the other hand, the booming call centre industry has gotten

used to talent piracy by competing companies which openly advertise extra pay and

bonuses for those ready to work in call centre cubicles without any need for training.

2The term was originally coined in 2005 by the Fair Trade Alliance and its allied industry affiliates,

which were alarmed over the rapid loss to the overseas labour market of hard-to-train professionals

and skilled workers such as pilots and aircraft mechanics. The term was subsequently adopted by

the Philippine Overseas Employment Administration (POEA) in Resolution No. 1 for 2006.

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3. Unions’ Complaints, Employers’ Laments, and Labour

Administrators’ Headaches

The truth is that outside the large IS/IE, a new world of work is taking shape in

the formal sector under globalisation and a more liberalised and integrated ASEAN.

The impact on the tripartite social partners – unions, employers, and government – is

somewhat confusing, policy-wise.

Unions, which have very limited reach in ASEAN (see Table 2), generally take a

negative view of these developments. They see the trend towards flexibilisation and

leaner work arrangements as further eroding the base of unionism. Abuses associated

with casual and short-term hiring arrangements under informalisation is usually

tempered by protective labour laws or labour standards enacted by the State to prevent

such abuses such as the arbitrary termination of employment, dismissal without due

process, and withdrawal of benefits because employees are categorised as non-regular.

However, Caraway (2010) argued that there is a wide gap between ‘de jure’ protection

reflected in the labour law system and the ‘de facto’ enforcement of these standards.

The widening gap between paper protection and actual enforcement naturally ‘exerts

downward pressure on labour standards and increases the actual level of labour market

flexibility’.

The ASEAN 5 countries have fairly well developed labour laws, most of which

were ‘western transplants’ (Cooney, et al., 2002) from their former colonial masters –

from the United States for the Philippines, from United Kingdom for Singapore and

Malaysia, and from the Netherlands for Indonesia. Thailand is exceptional because it

was never colonised; however, it is a founding member of the ILO, which was

established nearly a century ago, in 1919. In the CLMV countries, ‘new’ labour laws

and rules are being developed in line with the shift from socialist command economies

to liberal or open market economies. Viet Nam’s ‘Labour Code’ was adopted in 1995,

Cambodia’s ‘Labour Law’ in 1997, and Lao PDR and Burma adopted theirs in the

mid-2000s.

Table 2: Rates of Unionisation in Southeast Asia (as of 2000)

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Country Unionisation Rate

Myanmar

Cambodia

Indonesia

Lao PDR

Thailand

Malaysia

Viet Nam

Philippines

Singapore

0.0

1.0

2.6

3.0

3.1

8.3

10.0

12.3

15.7 Source: Extracted from Table 1 of Caraway (2010), p. 228.

On the other hand, employers argue that the old ways of doing business in the

context of a secure or protected national market are gone. Under globalisation,

business has to be nimble and should have the flexibility to increase or reduce jobs,

wages, and benefits, depending on the fluctuations in the market for their goods and

services. And since they are competing not only within their national boundaries, they

cannot afford not to keep abreast with business practices adopted by competitors

overseas, such as outsourcing of production, if feasible. Human resources management

has also become challenging –some examples: How does one manage a diverse

workforce composed of foreign migrants and natives? How does one retain talents

whilst keeping middle management and short-term rank-and-file workers happy and

productive? How does one deal with the unions or worker representatives in a

globalised work setting or environment?

For those in charge of labour administration, the tasks have also become doubly

difficult, especially in terms of policy balancing. First, they have to be seen as

protectors of workers of all collars and nationalities. IR is no longer a purely national

concern. Second, they have to attend to the needs of migrant workers deployed

overseas, which means they have to be in the business of labour diplomacy too. Third,

traditional tripartism is complicated by the reality that major investors, particularly

multinationals with branches on foreign shores, do not necessarily attend tripartite

meetings. Hence, they have to find ways of reaching them or holding dialogues with

these investors, especially when labour disputes erupt in the multinationals’

subsidiaries. Fourth, they have to devise new ways of anticipating supply and demand

in the labour market because the old system of manpower forecasting based on

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historical national economic data has been weakened by the reality that labour supply

and demand are affected by abrupt changes in technology (example: from analogue to

digital in telecommunications), changes in market demand for certain products, and

state of competition at the regional and global levels. This is why education and skills

development planning requires closer coordination with labour administrators as well

as the industry ministry. The list could go on and on.

4. The ASEAN IR Response: Positive Reform Measures

ASEAN has taken a positive and progressive stand on how to address some of the

labour policy issues emerging in a globalising and integrating ASEAN. The first is the

issue of social protection for all, which is now the subject of wide-ranging discussion

within ASEAN under the Socio-Cultural blueprint.

On flexibilisation, there are ongoing debates and dialogues in the individual

ASEAN countries that are focused on the most contentious issue – labour contracting

or placement of workers with the involvement of third-party service or manpower

providers. After a series of protests in Indonesia, the Ministry of Transmigration came

up with new rules to rein in unchecked or unregulated outsourcing of work. MOLISA

of Viet Nam also came up with new regulatory rules, after recognising the legitimacy

of outsourcing. The message: outsourcing is legitimate but it cannot be promoted for

outsourcing’s sake at the expense of the workers or to avoid basic employers’

obligations to the workers.

There are also exemplary tripartite agreements on outsourcing. The first is the case

of Singapore, which adopted a Tripartite Agreement on Responsible Outsourcing.

There is no legal framework governing outsourcing in Singapore. To counter ‘cheap

sourcing’ practices, particularly for the low-skill services such as cleaning and

landscaping, the National Trade Union Congress (NTUC) of Singapore launched a

campaign to curb abuses in outsourcing and for the industry to adopt better sourcing

practices. The government responded by calling for tripartite consultations.

Eventually, the Singapore National Federation of Employers supported the Tripartite

Agreement on Responsible Outsourcing, which provides, amongst other things,

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guarantees for the basic rights of and a decent work environment for outsourced

workers (Ministry of Manpower, 2013).

The second model is at the industry level, based on the agreement forged by the

Banking Industry Tripartite Council (BITC) of the Philippines on outsourcing

(Ofreneo and Nguyen, 2013). This was given a long title – ‘Banking Industry

Voluntary Code of Good Practice on Dispute Settlement and

Outsourcing/Subcontracting of Certain Bank Functions’. In this agreement, the BITC,

which includes representatives of the Central Bank, agreed on two important things:

1) no outsourcing of ‘inherent bank functions’, and 2) union-management consultation

should there be a necessity on the part of any bank to outsource some activities.

Another positive development is the progress of CLMV countries in crafting

labour law reforms. Although Viet Nam, Cambodia, and Lao PDR developed their

respective labour law systems in the 1990s, they continue to review and improve them.

One notable gain, of course, is the progress of Myanmar, once considered a pariah in

the international labour movement, in its decision to craft labour laws that are more

consistent with the global standards. Myanmar today is riding high atop a wave of

labour, social, and economic reforms.

Another positive development at the regional level was the decision of the ASEAN

Labour Ministers (ALM), at their meeting in Hanoi in 2010, to adopt an official

document entitled ‘Good Industrial Relations Practices’, which states that ASEAN

officially recognises basic labour rights such as freedom of association and collective

bargaining and is keen on promoting bipartite and tripartite social dialogue to address

workers’ grievances (ASEAN Labour Ministers, 2010). On dialogue, the ASEAN

Service Employees Trade Union Council (ASETUC), organised on the initiative of the

Union Network International – Asia Pacific Regional Organization (UNI Apro), has

in fact been holding Regional Social Dialogues on Sound Industrial Relations in the

Services Sector with the support of the ASEAN Secretariat. The ILO, on the other

hand, has been arranging regional seminars on industrial relations involving the

ASEAN Trade Union Council (ATUC), the ASEAN Confederation of Employers

(ACE), and the tripartite representatives of the different ASEAN member countries.

Some policy makers in ASEAN are also eager to introduce reforms that will tame

what the unions call as the ‘Race to the Bottom’ amongst industries and countries, that

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is, industries and countries are luring investments by rolling back or ignoring labour

rights. In this regard, the initiative of the Law Reform Commission of Thailand

(LRCT) in December 2014 to propose the recognition of labour rights under ‘One

ASEAN Standard’ is indeed noteworthy. The idea is to have harmonisation and

synchronisation of national labour laws in the different ASEAN countries with the

international labour and human rights conventions and the regional or ASEAN policy

recognising the basic or fundamental freedoms of the people under the ASEAN

Charter (ASEAN, 2007a).

Finally, there are skills development programmes that ASEAN has been pursuing

since the 1990s, which this paper will not elaborate on.

5. The Way Forward: Deepening the Social Dialogue Process

As the integration processes in ASEAN intensify, difficult labour issues and

concerns are bound to surface. How should ASEAN handle them? There are no clear-

cut rules or solutions. However, one clear policy framework where ASEAN cannot go

wrong is to sustain and deepen the social dialogue process amongst the social

production partners, including the non-traditional tripartite actors such as farmers’

unions and civil society organisations. After all, the ASEAN way has been to forge

consensus on all issues before taking a decision. No consensus is possible without

being preceded by some form of social dialogue.

Modern and democratic industrial relations means rule making by the parties, the

outcomes of which are expressed in collective bargaining agreements, personnel

policies, and labour laws. Incidentally, some of the most competitive companies in

ASEAN happen to have unions and have sustained productive partnerships forged

through positive dialogues on each party’s concerns and interests. In 2007, the Union

Network International even recognised some of these companies by giving them a

‘UNI APRO Employer-Partner Award’. These companies are Banco de Oro Universal

Bank of the Philippines (which has three decades of productive partnership with the

National Union of Bank Employees), Telekom Malaysia (which has a system of

continuous consultation and fruitful dialogue with the National Union of Telekom

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Employees), Star Publications Berhad of Malaysia (which survived five months of

suspended operations with the full support of the National Union of Newspaper

Workers), Media Corp of Singapore (which has become Asia’s top media company by

cementing stronger cooperative relations with the Singapore Union of Broadcast

Employees), and OCBC of Singapore (which adopted a pro-people strategic human

resource management system and invested in positive relations with the Singapore

Bank Officers Association and the Singapore Bank Employees Union). All these five

outstanding companies have resolved difficult issues in the past, such as human

resource management adjustments during crisis times, organisational restructuring due

to the introduction of new technology, outsourcing of some work to outside service

providers, and so on.

ASEAN companies and industries, encouraged by the ALM’s Guidelines on Good

IR Practices, can and should strive to develop sound IR systems. What is a good IR

system? The following is a good summation of its characteristics:

‘First, the system must satisfy the employers and trade unions,

management and workers who are the principal actors in it. Second, it should

operate without undue industrial conflict. It must determine wages, working

conditions and working practices that are consistent with national economic

and social needs. And fourth, closely linked with the third, it should facilitate

the organizational and technological change that is essential to a successful

economy, whilst at the same time ensuring that the costs of adjustment are

equitably shared.’ (Clarke and Niland, 1991)

The above description of a sound IR system is the opposite of the conflict-ridden

and beggar-thy-neighbour Race to the Bottom policy (usually unwritten and

undeclared), which seeks to promote industry competitiveness by rolling back or

avoiding compliance with labour rights. A sound IR system promotes a Race to the

Top through social dialogue on how the interests of all parties (especially profits and

business viability for the employers and decent work standards for the workers) can be

secured through joint efforts to promote skills and technology upgrading, productivity,

competitiveness, and smooth adjustments to a changing business and labour market.

Of course, there will be unavoidable adjustments pains, and they should be, as Clarke

and Niland put it, equitably shared.

16

One painful adjustment issue is the use of short-term contract labour. Due to the

realities of global competition and rapid technological and industrial changes, not all

jobs can be regularised and made permanent. But it is also a reality that, adopting a

Race to the Bottom attitude, some industries resort to unnecessary outsourcing and

short-term hiring arrangements just to ride roughshod over workers’ rights and promote

in a narrow way their equally narrow vision of competitiveness. This paper suggests

that ASEAN Member States should strike a balance, through tripartite and bipartite

social dialogues, in the formulation of policies and rules – a policy balance that

recognises labour market realities without trampling on labour rights. This is what

Indonesia, Philippines, Singapore, and Viet Nam have tried to do and continue to do.

Also, at the ASEAN level, dialogues between the ACE/ASEAN Business Advisory

Council (ABAC) and the ASETUC/ATUC on good practices on labour and service

contracting can be organised, with the participation of compliant service contracting

companies and associations. The latter should be committed to the 1997 ILO

Convention 181 on ‘Private Employment Agencies Convention’, which recognises the

importance of flexibility in modern business, but also affirms the need to protect

workers’ rights such as freedom of association. Eventually, some kind of a code of

conduct to promote ethical and professional service contracting can be developed by

ALM and the ASEAN Secretariat.

As to the proposed labour law harmonisation ASEAN-wide, this is a worthwhile

undertaking, but economic, historical, political, and cultural realities in each country

should be considered. What can feasibly be done is to focus mainly on the

strengthening of laws and supporting rules and institutions for the core labour rights

outlined in the 1998 ILO Declaration on Fundamental Principles and Rights at Work,

i.e. freedom of association, collective bargaining, non-discrimination, prohibition of

forced labour, and elimination of extreme forms of child labour. Related to that, there

should be collaborative assistance in upgrading the capacity of ASEAN Member States

in labour inspection, that is, to have an inspectorate system that minimises in a

proactive manner labour abuses and violations, especially in relation to standards on

core labour rights and occupational-safety-health (OSH) work conditions.

17

As to the protection of migrant workers’ rights, it is high time that ASEAN suits

its actions to its words. There should be definitive timelines for the adoption of the

implementation instrument and supporting rules.

To conclude, the ASEAN is poised to be more competitive under ASEAN 2015.

This competitiveness can be greatly enhanced if ASEAN continues and deepens the

good IR practices outlined by the ALM, the most important element of which issocial

dialogue. These good IR practices are essential building blocks for a caring and sharing

ASEAN community.

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20

Annex – Learning from Singapore’s Tripartism

(NOTE: As per the decision of the ASEAN Labour Ministers in 2010, the Association

of Southeast Asian Nations (ASEAN) and the individual ASEAN Member Countries are

committed to the promotion of good industrial relations practices and the development

of a sound legal framework in support of tripartism and social dialogue. One way of

doing this is by learning from each country’s experiences and emulating the good

practices that each country has developed. The reality is that almost all the ASEAN

countries have their own positive experiences. The following is a summary of

Singapore’s experience in the promotion of tripartite dialogue in support of economic

development.

Singapore is a country that has actively promoted industrial development through

tripartite consultation. This was aptly demonstrated in 2009, when the Prime Minister,

had an open discussion with the representatives of the National Trades Union Council

and the Singapore National Employers Federation, on how Singapore should

overcome the global financial crisis which had hit the island state badly because of its

high exposure in global finance. Thanks to a tripartite consensus on stimulus spending,

skills development, and other positive measures, Singapore quickly rebounded and is

once again experiencing strong economic growth.

Tripartism works in Singapore3, particularly in the area of wage setting. Wage setting

at the national level can be divisive and tumultuous, as was the case in Singapore. But

the tripartite approach in support of a ‘flexible wage system’ in an industrialising

Singapore is now considered a global success story.

Before independence, Singapore was a low-wage, surplus-labour developing economy

with high unemployment. In the 1960s and 1970s, the economy attained rapid growth

through export-oriented, labour-intensive industrialisation, relying on a relatively low-

skilled, low-wage work force. Economic growth surged but industrial disputes also

increased. This necessitated the passage of certain labour laws regulating labour costs

and labour movement, i.e. the Industrial Relations Ordinance of 1960, the Industrial

Relations Act of 1968, and the Employment Act of 1968.

But the most significant labour measure was the establishment in 1972 of the National

Wages Council (NWC), a tripartite advisory body in support of orderly wage

regulation. The NWC became an arena for social dialogue and wage determination. It

3See Hing Ai Yun (2003), ‘Social Dialogue and the Flexible Wage System in Singapore’, in Best

Practices in Social Dialogue, New Delhi: ILO and IIRA.

21

has 30 members with 10 each representing employers, government and trade unions.

However, the chairman is chosen for his integrity and neutrality.

The NWC, through its sub-committees, has been taking up not only issues of wage

adjustments, but also other labour market issues such as changing skills requirements

of a fast-changing industry and economy, movement of skills and talents within the

labour market, and so on. On wage adjustments, the NWC has been making

recommendations based on studies and tripartite consensus. It issues guidelines to

industry and unions as the basis for wage negotiations. But in the end, most wage

settlements tended to converge with the guidelines.

On a larger scale, the NWC has played a significant role in shaping the directions of

the economy, particularly in Singapore’s transformation from a low-wage country to

a competitive NIC economy. In this regard, the NWC has always linked growth in

wages to growth in the economy through the realisation of higher productivity. In this

regard, the work of theNWC is closely related to the administration of government

assistance to industry in upgrading the latter’s technical and skills base. This assistance

is managed through the Skills Development Fund (SDF), a fund established with

contributions from industry. The SDF provides support for productivity-oriented and

technology-adjustment training programmes for managers and workers. The

Department of Science and Technology is also involved because it undertakes studies

and provides assistance on technological upgrading.

In 1984, the capacity of the NWC was severely tested in Singapore’s first recession.

Again, the creativity of the NWC surfaced: it undertook an in-depth study of how

companies can respond quickly to economic downturns by adjusting wages rather than

resorting to layoffs. Earlier, the government had nudged industry to increase wages

and productivity to help the country get out of the low-wage, low-industrial

development stage.

From the ‘flexible wage system’ to ‘Project Advantage’

In 1986, the NWC set up a subcommittee on Wage Reform (NWCWR), which

recommended the adoption of a Flexible Wage System (FWS).The idea was to

minimise displacement of workers during economic crises and encourage companies

to reward workers during economic upturns. This paved the way for the development

of the ‘variable pay’ (also called ‘strategic pay’) system and the FWS. Under the FWS,

a worker’s wage is divided into three major components: (i) a basic wage that serves

as the minimum that should be given to an employee to meet daily needs; (ii) a variable

wage component that can go up or down depending on the productivity and

profitability of the company; and (iii) an incremental wage component related to a

22

worker’s service to the company (e.g. longevity and seniority). This formula is a

flexible and win-win formula. In 1993, a study found that more than three-fourths of

Singapore’s firms had shifted to some kind of flexible system, including 85 percent of

the unionised companies.

It should also be pointed out that many of the NWC’s recommendations are directional,

meant to serve as reference points for wage negotiations and settlements. The idea is

to provide good reference wage indicators, which can serve as a basis for realistic

negotiations and social dialogue amongst the parties. It has also been made clear by

the tripartite industrial relations actors that the FWS is ‘not about cutting wages’ but

about rewarding performance and insuring business and job sustainability.

As can be readily seen from Singapore’s progress over the last three decades, the FWS

and the system of tripartite/bipartite social dialogue have served the country well in

achieving faster economic growth, smooth structural changes in the economy, and

industrial peace. Today, Singapore is discussing the extension of the working age

through ‘Project Advantage’,4 managing the mobility and diversity of the work force

and preparing for the job requirements of the 21st century. It is also discussing how a

new ‘Social Contract’ can be forged given the new forms of social and economic

inequality in an economy that continues to surge ahead. The bottom line is social

dialogue for inclusive growth for all.

Tripartism in other areas of work force development

As can be surmised, Singapore is a big user of tripartism in support of smooth wage

and economic adjustments. The reality is that Singapore has been applying tripartism

in other areas of work force upgrading and economic development. This can be readily

seen in the following tripartite committees and task forces, their titles indicating their

nature and mission:

Tripartite Review Committee on Employment Act, 1994–95

Tripartite Committee on Extension of Retirement Age, 1997

Tripartite Panel on Retrenched Workers, 1998

Tripartite Committee on Executives Joining the Rank and File Unions, 1999–

2000

Tripartite Committee on Portable Medical Benefits, 2000–2001

4Under Project Advantage, management and unions are encouraged to discuss a re-design of jobs

for ageing workers so they can continue work up to retirement age or even beyond. For example,

a camera man who has to carry heavy photo equipment can be given a movable trolley to avoid

carrying heavy items.

23

Tripartite Review Team on Section 18A of the Employment Act on Company

Restructuring, 2004

National Tripartite Advisory Panel on Family Friendly Practices, 2004

Tripartite Committee on Flexible Work Schedules, 2004

Tripartite Committee on the Employability of Older Workers, 2005

Tripartite Alliance for Fair Employment Practices, 2006

Tripartite Panel on Community Engagement at Workplaces, 2006

Tripartite Implementation Workgroup, 2007

Tripartite Workgroup on Employment Act Review, 2008

Tripartite Taskforce on Managing Economic Downturn, 2008–2009

Tripartite Upturn Strategy Teams (TRUST Teams), 2009

In addition to the above, tripartite advisories and guidelines are issued from time to

time, such as ‘Tripartite Guidelines on Non-Discriminatory Job Advertisements’

(1998), ‘Tripartite Guidelines on Best Work-Life Practices’ (2003), and ‘Tripartite

Advisory on Responsible Outsourcing Practices’ (2007).

For Singapore, there is no substitute for information sharing, consultation, and

dialogue when it comes to various industrial relations and labour market issues and

concerns.

24

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Host-site Support, Foreign Ownership,

Regional Linkages and Technological

Capabilites: Evidence from Automotive

Firms in Indonesia

Feb

2015

2015-07 Yansheng LI, Xin Xin

KONG, and Miao

ZHANG

Industrial Upgrading in Global

Production Networks: Te Case of the

Chinese Automotive Industry

Feb

2015

2015-06 Mukul G. ASHER and

Fauziah ZEN

Social Protection in ASEAN: Challenges

and Initiatives for Post-2015 Vision

Feb

2015

2015-05 Lili Yan ING, Stephen

MAGIERA, and Anika

WIDIANA

Business Licensing: A Key to Investment

Climate Reform

Feb

2015

2015-04

Gemma ESTRADA,

James ANGRESANO,

Jo Thori LIND, Niku

MÄÄTÄNEN, William

MCBRIDE, Donghyun

PARK, Motohiro

SATO, and Karin

SVANBORG-

SJÖVALL

Fiscal Policy and Equity in Advanced

Economies: Lessons for Asia

Jan

2015

2015-03 Erlinda M. MEDALLA

Towards an Enabling Set of Rules of

Origin for the Regional Comprehensive

Economic Partnership

Jan

2015

2015-02 Archanun

KOHPAIBOON and

Juthathip

Use of FTAs from Thai Experience Jan

32

No. Author(s) Title Year

JONGWANICH 2015

2015-01 Misa OKABE

Impact of Free Trade Agreements on

Trade in East Asia

Jan

2015

Previous year of ERIA Discussion Paper, can be downloaded at:

http://www.eria.org/publications/discussion_papers/FY2014/

http://www.eria.org/publications/discussion_papers/FY2013/

http://www.eria.org/publications/discussion_papers/FY2012/

http://www.eria.org/publications/discussion_papers/FY2011/

http://www.eria.org/publications/discussion_papers/FY2010/

http://www.eria.org/publications/discussion_papers/FY2009/

http://www.eria.org/publications/discussion_papers/FY2008/